Slowly but surely the music industry seems to be losing its grip on its most precious asset as illegitimate online services continue to attract millions of its consumers.

New generation of music lovers get it for free

Music is now not just a packaged commodity to be bought with well-earned pocket money on a Saturday morning, but a 24-hour service, available free from hundreds of online sources at the touch of a mouse, albeit illegally.

And when a self-confessed "accused, international internet pirate," such as Wayne Rosso, head of file-sharing firm Grokster is invited to a conference hosted by the Financial Times, then it would seem the music industry's greatest bete noire has definitely gone mainstream.

The music industry is alienating its own customers, Mr Rosso told delegates at the conference.

Legitimate services struggling

I think they deserve to be pirated against. Any business that complacent and arrogant towards the market doesn't deserve the support of loyal customers

Paul Myers, Wippit

"The record industry has become the National Rifle Association of showbusiness. It has declared jihad on its customers who it calls pirates," he said.

File-sharing services such as Grokster now boast millions more customers than Napster, the original file-swapping music service, had at its peak.

"Last year, around about the stage that file-sharing was ramping up, there was a huge window of opportunity for the record industry to do something before it became too ingrained but that moment has disappeared," said Mark Mulligan, senior analyst at Jupiter Research.

Jupiter Research's latest study reveals that legitimate internet music services are struggling to get off the ground despite the fact that nearly 40% of Europe's digital music fans are willing to pay for music online.

With the music industry refusing to offer up any but a small percentage of its artists for digital download, millions of music lovers are using services such as Kazaa to swap tracks and build up online libraries of free, if illegal, music.

File-swapping services are becoming almost as easily recognisable as the music labels themselves and boast an enviable number of users.

Free spirits

When those teenagers hit the 20- 34 age group with no intention of paying for music then that is going to be incredibly bad for the music industry

Grokster claims to have 5.4 million unique users in the US, with the average users using the service 10 times a month.

No surprise then that Grokster and its counterparts are making money from advertising on their services. And they have spawned a cultural shift in the attitude towards music.

A whole generation of youngsters are growing up with a new view of music, not as a commodity but as a file to be shared with anyone in cyberspace.

"When those teenagers hit the 20- 34 age group with no intention of paying for music, then that is going to be incredibly bad for the music industry," said Mr Mulligan.

Joining the pirates

It is not just youngsters getting involved in file-sharing. Grokster says that 38% of its users are over-45s.

High-speed net access has prompted a revolution in file-sharing with up to 60% of total broadband traffic thought to be some form of file swapping.

Record labels need to get with the tune, suffer some pain now and release their precious catalogue of artists or miss the online boat completely, said Mr Mulligan.

"The major labels are licensing some degree of their catalogues but it is far too restrictive with limited usability," he said.

The frustration for legitimate online music companies such as Wippit is reaching a head.

Chief Executive Paul Myers is considering joining the pirates.

"Three years is a long time to be the good guys. Wippit is three years old next week and offers 60,000 tracks from nearly 200 independent labels but not one tune from any of the majors," he said.

"We have business terms agreed with three of them and have done for a long while but we're finding it very difficult to get any actual music live from any of them. One major label won't even return our calls.

"I think they deserve to be pirated against. Any business that complacent and arrogant towards the market doesn't deserve the support of loyal customers," he added.

By summer Wippit plans to offer major label music, with or without the co-operation of the music industry.

Guarding copyright

The industry is spending way too much time guarding its copyright rather than exploiting it

Wayne Rosso, Grokster

The self-confessed internet pirate on the other hand, would like to be able to offer legitimate services at a realistic price.

Grokster's Wayne Rosso recommends a price model similar to that adopted by internet service providers when flat-rate net access became available.

Around £3 for an evening of unlimited downloads, £8 for a weekend and around £15 for a month's worth of music are the kind of prices he thinks consumers would pay.

The music industry is a long way away from such a model said Mr Mulligan from Jupiter.

"The crux for the labels is they have to be licensing far more proactively and liberally but they are nowhere even near a middle ground," he said.

The record industry is losing touch, not just with the new digital form of music but with its fans.

"Kids don't want to spend $18 on an album with just one or two hit songs on it," said Mr Rosso.

"The industry is spending way too much time guarding its copyright rather than exploiting it," he added.

For its part the music industry admits that it has responded very slowly to the new digital medium.

"Things are happening but it is slow," said a spokesman for the International Federation of the Phonographic Industry (IFPI).

"But it is very difficult to build a legitimate business model when faced with alternatives that are giving away music," he added.